In an apparent attempt to head off stricter SEC regulation, the American Bar Association in August relaxed its ethics rules to allow, rather than require, lawyers to blow the whistle on clients if they discover corporate misdeeds.
However, other moves are “driving a coach and horses” through traditional notions of client confidentiality, according to Richard Fleck, corporate partner at Herbert Smith, the London-based law firm. He points to US investigators’ offers of leniency if corporations waive their right to attorney-client privilege and hand over confidential material when they are under suspicion. He says many believe that offers the companies “Hobson’s choice” – they can either waive their right or be pilloried for failing to co-operate.
The winds of change have blown across the Atlantic too, even though the SEC has backed away from attempting to foist the “noisy withdrawal” requirements on foreign lawyers. The UK government has made it clear – not without justification – that the need to tackle terrorism and organised crime must override legal privilege in some circumstances.
Earlier this year, the Court of Appeal defined legal privilege more narrowly than many had assumed to be the case. It ruled that the Bank of England had to disclose internal documents relating to its supervision of the collapsed Bank of Credit and Commerce International. The bank argued that this material was covered by “legal advice privilege” because it was prepared with a view to obtaining legal advice from Freshfields, its solicitors.
But the court agreed with BCCI’s liquidators that only the communications between solicitor and client were privileged.
What is giving many Brit ish lawyers sleepless nights is the money-laundering section of the Proceeds of Crime Act, even though it is yet to come into force. The regulations will require lawyers – as well as accountants and those providing financial services – to report to the authorities whenever they find, suspect, or even ought to suspect that a client is engaged in money-laundering.
Paul Marshall, a barrister specialising in commercial and financial law, says: “One object of the new provisions is to turn those engaged in financial and related services, including bankers, accountants and lawyers, into the unofficial policemen of financial transactions.”
Many lawyers feel this could put them into conflict with clients, dissuade clients from being open and expose them to criminal liability if they fail to spot money-laundering or tax evasion. And it is not just solicitors involved in commercial deals who are concerned.